It's true that the best way to go about it, is to use a paint program that can handle layers. DDS compatibility isn't necessary because it is always possible to use Martin Wright's DXTBmp proggie for that. This program can convert .bmp to .dds, even with an Alpha component. As I didn't get the result I wanted with the .dds plugins (didn't know how to set all the various parameters), I have used DXTBmp to my satisfaction. This is really all that you need to re-skin a model. BTW, there's also the Gimp; an open source, freeware paint program.
Autothrottle, if you want to have a new texture for a model next to the original (instead of replacing it), you do have to make a copy of the original model and turn it into a standalone. If you do not do this, CFS3 will randomly choose the original texture or your new one because everything has to have a unique file name. Creating a standalone of an existing model solves this problem by renaming all the necessary model files. Search the forum for 'creating standalone'. There are several tutorials that explain the procedure. It is not difficult but before you start, make a backup (!) of the original files. The other thing you need, is a hexeditor program, as you cannot rename the .dds references inside the .mos file and the .m3d file without one. There are several good freeware versions available. A hexeditor with a search function is best; you only have to enter '.dds' in the search box to find the file references you need to alter. For the remaining file editing you can use NotePad
So, in the end, you need two or three programs (depending on having a .dds plugin or not. Notepad is included with Windows): a paint program with layer compatibility, a .dds plugin or DXTBmp and a hexeditor...
Good luck to you all!!